SMART BANKS

Its not Mohan alone. Automobile companies like Hyundai,Maruti Suzuki,Tata Motors and General Motors,which have,of late,been having a tough run,recently realised the changes and entered into a spate of tie-ups with public sector banks. Earlier,private banks used to corner more than 50 per cent of vehicle financing. Public sector banks also offer a bouquet of services (like credit cards,debit cards,mutual fund distribution,personal loans,home loans,insurance marketing,home loan packages and ATMs),which used to be the forte of private banks earlier.

Public sector banks,which were considered laggards for long,are now changing that perception. Be it technology or aggressive marketing,PSU banks are getting it right now. And the global financial crisis that led to a collapse and prompted bailouts in the global banking segment is just one of the reasons for this transformation.

Public sector banks,with majority shareholding under government control and saved by the tight regulatory framework of the Reserve Bank of India in the recent turbulent times,are shedding their lethargy,unleashing mega campaigns to attract customers and embracing new marketing techniques like freezing of interest rates and innovative product packages for various classes of customers. Their aim is to move into the space vacated by private banks,which set a scorching pace in expansion of banking services in India during the years when India grew at over 9 per cent a year.

NEW PACKAGES,OFFERS

The change is most visible today in the home loan segment. Till about a year ago,ICICI Bank had taken the wind out of nationalised banks. It had,in fact,redefined retail lending in a way never seen before in free India. Many did not wait to write epitaphs of the countrys largest bank,the State Bank of India. But today,when the chips are down,it is SBI that is cocking a snook at ICICI Bank and HDFC,the largest home finance company in the country. Other state-owned banks followed SBI in such aggression.

Nationalised bankswhich are offering home loans through various schemes at 8-8.50 per cent while private banks charge 2.50-3 per cent more on home loansare setting the direction of interest rates these days. They have come out with a home loan package for loans of up to Rs 5 lakh and Rs 20 lakh,with frills like no processing charge,no prepayment charges and free insurance cover. State Bank of Indias move to freeze home loans at 8 per cent for a year has given major private players a run for their money.

Nationalised banks are the only ones in the job market that are hiring people at a time when other sectors are dishing out pink slips to their employees. M.V. Nair,chairman and managing director,Union Bank of India,had said the bank plans to recruit 5,000 people,including 4,000 at the officer level,by the end of the current fiscal. Earlier,State Bank of India,Bank of India and Bank of Baroda had announced similar plans to recruit more staffers to manage their growing operations.

The banks are not just hiring employees,theyre roping in customers too. We have an excellent technology platform today and were well equipped to offer high-tech products to our customers. With increased focus on customer service,we have not only been able to retain our existing customers but are also getting new ones. Of course,PSU banks are perceived to be safe and secure,so that helps too, says M.D. Mallya,chairman and managing director of Bank of Baroda. We have become more market savvy and are taking new initiatives to continue our growth. The bank got 10 lakh new customers in this financial year.

Though private banks introduced the concept of Internet banking and retail banking,public sector banks are catching up fast. For instance,all 4,604 branches of Punjab National Bank are wired today for computerised operations by Finacle,Infosys core banking solution software. Customers of PSU banks can utilise the Internet banking system to access his account,see the balance and even order cheque books. They can avoid a visit to their branch by utilising the ATMs that have mushroomed in every corner.

This could be one golden chance for nationalised banks to regain their lost glory. US rating agency Moodys last year said public sector banks had lost,on an average,one per cent each year for the past 15 years to their private sector rivals led by ICICI Bank,HDFC Bank and Axis Bank. The private sector,with better product portfolio,faster service and superior technology,improved its market share from 17.5 per cent in terms of total assets in 2003 to 21.5 per cent in 2007 and the share of public sector banks declined from 75.6 per cent to 70.5 per cent in the same period. But thats history now.

NEW REALITIES,SAFE HAVEN

What was happening in the past has drastically changed now. Private sector banks that offered freebiesadd-on cards and assured gifts to personal loan takersand higher returns to lure customers cant afford to do so in the changed circumstances. Their rising non-performing assets (NPAs) are a cause of concern. According to a Crisil study,NPAs in retail loans are expected to increase to around 4 per cent (of the advances) by March 2009,from 2.7 per cent as on March 31,2007.

So in a way,some space has been vacated for nationalised banks and we are filling it up. Private sector banks also have the liberty of not lending in the fear that it might add to their NPAs (non-performing assets) but we do not enjoy that privilege, said the chairman of a leading public sector bank on the condition of anonymity.

The resurgence of nationalised banks has been strong. Take the case of State Bank of India,the largest bank in the country. While many banks and financial services giants in the US and Europe fell by the wayside,SBI witnessed a sharp jump in its business in the last six months. Its deposits grew by a whopping 36 per centfrom

Rs 5,10,132 crore in December 2007 to Rs 6,92,921 crore as on December 31,2008. SBIs market share in domestic deposits has increased by over 200 basic points to 17.51 per cent in December 2008 from 15.47 per cent in December 2007, said an SBI official.

And it is in times like these that an average Indian banking customer gets definedhe is the man who doesnt want nasty surprises when it comes to his money and so,looks for safe havens. A few years ago,customers were attracted by many other things,but in these uncertain times,they are looking forward to banking with nationalised banks as they are owned by the government and are perceived to be safer. It is about how a customer perceives the banks he does business with, says K.R. Kamath,chairman and managing director of Allahabad Bank.

Private sector banks witnessed outflow of deposits in October-December. They have liquidity issues. As a result,they slowed down their lending, says D.R. Dogra,executive director,CARE Ratings. Dogra and PSU bankers agree that they can consolidate their operations only with faster delivery of services and innovative and customer-friendly products.

Even PSU bank employees,who were never known for their customer-friendly approach,have also started seeing the writing on the wall. I find PSU bank employees more helpful now. If there’s any shortage in my account in Bank of Baroda,they call me and inform,which was not the case earlier, says K.A. Viswanathan,who retired from a public sector company.

Public sector banks,for a long time,had taken it for granted that they could survive any competition since they were backed by the government. However,the challenge from private banks made them realise the need to reinvent themselves as smart,customer-friendly institutions.